Although signed into law in April, most of the provisions of the bankruptcy reform legislation become effective today. If you are not sick of hearing about the topic, I will be discussing it on the Newshour with Jim Lehrer either today or tomorrow depending on the press of other business.

For those who wonder whether consumers respond to the incentives provided by the bankruptcy code, bankruptcy filings last week shattered all previous records.

1) The fact that people respond to incentives is not nec. justification for these changes. And please note that lenders made loans under one set of conditions, then (a number of them, in coalitions) had the conditions changed.

2) One additional reason for a record number of filings is that the implications of the new law are largely unkown. There're a lot of precendents under the previous law, and people could rely on them. The new law will, for quite a while, have much more uncertainty.

The new law is probably the best reason why you don't want the dregs of our nation's night schools drafting important legislation. Anyone who saw the sheer, inevitable panic in the last two weeks at our bankruptcy courts probably realizes that most of the people who filed never would have contemplated the possibility had it not been for the new law; they would have continued to make payments at the usurious rates, thinking they had some moral obligation to do so, for the rest of their lives. And thanks to the vague wording of the statute, we are going to see the meaning of terms like "special circumstances" change with each Administration.

This was a radical change in our law, and radical changes always bring forth the Law of Unintended Consequences. In this case, a law that was drafted for the benefit of credit card companies, and with the hope that bankruptcy professionals would be hurt, will, because of the wave of filings over the last few weeks, cripple the credit card industry for years, and be a financial bonanza for lawyers.

The fact that people respond to incentives is not nec. justification for these changes. And please note that lenders made loans under one set of conditions, then (a number of them, in coalitions) had the conditions changed.

Untrue, the bankruptcy reform act didn't change the conditions under which the loan was made. The only thing it changed was the ability of one of the parties to walk away from their contractual obligations. In other words, government is now going to have to do its job by enforcing contracts rather than helping one party break them.

This whole thing has also been rather a boon to attorneys. I have a couple of friends that used to do the occasional personal bankruptcy that have been doing almost nothing else for the past four months. At $800-$1,200 a pop, it's been rather lucrative.

Hard to believe that people can't read the directions and do themir filings theirselves. But, a lot can't. I spent a lot of Friday with one person who wanted to hear what she should put in each box. Since I wasn't putting my name on her petition, I couldn't tell her that, just what it meant. Drove both of us crazy.

But then, who besides a lawyer or someone doing this for a living could tell you the difference between secured claims, nonsecured priority claims, and nonsecured nonpriority claims? And what is an executory contract? As if 98% of the Chapter 7 filers Friday had any claims against them except for nonsecured nonpriority claims (ok, maybe one secured claim in the form of their mortgage).

The filing rush was a further testimony to the amount of pain that this ill-conceived and immoral law will inflict on the weakest members of our communities. I can only pray that it will not take the deaths of innocents to cause the repeal of this abomination.

Justin:
Actually, it was Lands' End. I think the color is called "pumpkin." Glad you noticed! (I gave up the opportunity to buy Burberry ties years ago when I left private practice and became a professor....)